gammagraphics case study
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GammaGraphics
Financing Option Analysis
MT5880C Disruptive Technology and Value Innovation
Team 5
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Scope
Introduction
Financing Options (1st Round)
Financing Options (2nd Round)
Analysis
Conclusion
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Introduction
Formed early 1982 Initial capitalization ($5K each) Graphics teleconferencing Funds used up by mid-1982
Dr. Hank Magnuski
Dr. Michael Lutz
Partnership
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Goal To achieve:
Sales turnover $10 million/yearProfit margin 10% of sales
Sell for P/E 20x Company valuation at $20 million
Get 3 million each
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1st Round Financing Options
Option 1:Family & Friends
Option 2:Angel Investors
Option 3:Venture Capitalists (VCs)
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2nd Round Financing
Annual compound return rate (r)
n = 3, r = 35.7% > 35%
n = 2, r = 58.1% > 35%
Pre-money valuation $4 million
Post-money valuation $8 million
VC 50%
$20 million = $ 8 million x (1 + r) n
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Option 1 - Family and Friends
1st Round 6 months at most Supportive
2nd Round - VC $4.75 million each
$4m $3.8m
$0.2m
$10m $9.5m
$0.5m
After 1st Round
After 2nd Round 2-3 years later
$1.9m
$0.1m
Legend :
Hank & Mike
Family & Friends
VCs
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Option 2 – Angel Investors
1st Round 1 year or so Business connection Professional advice
$4m$3m
$1m
$10m$7.5m
$2.5m
2nd Round - VC $3.75 million each
After 2nd Round 2-3 years later
Legend :
Hank & Mike
AngelInvestors
VCs
$1.5m
$0.5m
After 1st Round
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Option 3 – Venture Capitalists
1st Round 1.5 – 2 years No track record Diluted ownership
$4m$2m
$2m
$10m$5m
$5m
2nd Round - VC $2.5 million each
After 2nd Round 2-3 years later
Legend :
Hank & Mike
1st VCs
2nd VCs
$1m$1m
After 1st Round
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DecisionIndividual
Gains % founder
share Pros and Cons
Friends & family
$4.75m 47.5%
• 100K will sustain startup for 6 months only
Angel Investors $3.75m 37.5%
Why Angel investors??
VC
$2.5m 25.0%• Less %
ownership• Difficult to obtain
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Conclusion/Key Takeaways
Take angel investors funding
Good business connection
Helpful advice/mentorship
Upon company sale $3.75 million each for Hank & Mike